Eq: Total Market

(New York)

For most of this year and last, the idea of a nasty full-blown trade war was like a boogey man that stalked investors, but still seemed a slightly distant threat. That is no longer the case, as an ugly trade war has rapidly developed into the status quo. Accordingly, many top analysts, such as at JP Morgan and Nomura, are saying that high US tariffs on China are here to stay. Market volatility is likely to continue as new news continues to stream out.


FINSUM: There is a lot to worry about in this trade war, but one of our immediate, but less discussed, concerns is about the intersection of tariffs, the Fed, and inflation. The tariffs are likely to raise US inflation by boosting prices for goods, which could keep the Fed from hiking, trapping us in a difficult environment.

(New York)

Bonds and stocks are at odds right now. Yields have dropped considerably as the bond market is predicting pain to come. Stocks have sold off, but are still around all-time highs. If you look at how money markets are currently priced they imply a whopping 20% decline in stocks. There is not a much macro data to support the money markets’ pricing, but it is certainly a sign to pay attention to. “The rates market has probably overreacted relative to other asset classes in the last two weeks. However, the macro backdrop is fundamentally more uncertain today”, says Deutsche Bank, continuing “The renewed trade tensions create downside risks which were deemed to be negligible 2 months ago”.


FINSUM: Stocks are going to react to economic data and the trade war, so the current forecasts for stock prices are only as good as one’s ability to prognosticate those factors.

(New York)

There was a beautiful four-month window between December 2018 and May 2019 when everything looked positive. The trade spat with China looked increasingly mild and economic data was strong. It was a mirage. Even the hefty 3.2% GDP growth figure was mostly because of an incredible buildup in inventories, which when stripped away leave growth at 1.5%. Further, revised data shows that industrial production has dropped 1.2% since December. Even though this counts for a small portion of the economy, it is highly indicative of the business cycle. Some areas like auto production and machinery are down much more at 5%.


FINSUM: The glorious rally of the first third of the year seems to have stalled and the bad news is piling up, with the trade war exacerbating everything.

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